Fed calls GMAC bank, gives access to bailout fund

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The U.S. Federal Reserve on Wednesday approved GMAC Financial Services' application to become a bank holding company, a status that would give the auto-financing arm of General Motors Corp. (GM) access to government bailout dollars and the Fed's discount window.

The move complements a $17.4 billion emergency loan package the government extended to GM and Chrysler last week to help them cope with plunging sales amid the credit crisis.

"Becoming a bank holding company is the best long-term solution to provide automotive and mortgage financing to consumers and businesses, including auto dealers," said GMAC spokeswoman Gina Proia. "As a bank holding company, GMAC will be competitively positioned to serve our customers by having improved access to funding."

Giving GMAC bank holding company status strengthens "GMAC's ability to fund the purchases of vehicles manufactured by GM and other companies and by helping to normalize the credit markets for such purchases," the Fed said.

As part of the approval, the Fed is requiring GM and Cerberus Capital Management LP to reduce their ownership stakes in Detroit-based GMAC. GM owns 49% of GMAC, a subsidiary it founded in 1919. Cerberus owns 51%.

GM must reduce its ownership interest in GMAC to less than 10% in voting shares and total equity. Cerberus, which owns Chrysler, must reduce its interest to a maximum of 14.9% in voting shares and 33% in total equity.

Additionally, the Fed is requiring an industrial loan company controlled by GMAC to become a commercial bank. That industrial loan company, Utah-based GMAC Bank has consolidated assets of $33 billion and deposits of $17 billion, the Fed said.

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Update: Treasury bails out GMAC - $5 billion

The Treasury Department is taking a $5 billion stake in GMAC in order to bail out the financing arm of troubled auto giant General Motors, officials said Monday night.

In exchange, the government will receive preferred equity shares, paying an 8% dividend.

GMAC also will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised.

The government also broadened its $17.4 billion bailout of the auto industry, saying it would lend an additional $1 billion to GM so it could invest in GMAC as the financing company reorganizes. This moves helps the financing arm meet the conditions of becoming a bank holding company.

The Federal Reserve last week approved GMAC's conversion to a bank holding company - a necessary step to receiving bailout funds - subject to certain conditions.

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